Taxation of Day Traders [Forex, Crypto, Stocks – Can You avoid Tax?]

Published on February 10, 2024

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Today I’m going to discuss something that I’ve been getting quite a few inquiries about, which is the subject of Taxation for Day Traders or Swing Traders.

If you’re trading stocks, forex, crypto, commodities, etc this is relevant to you.
We are going to talk about the ways you can be taxed, and based on that how should you structure yourself so you pay the least legal amount of tax possible.

A few days ago a friend of mine who’s a professional forex day trader reached out to me and said how people in their position do not need to pay any taxes in the UK because day trading can be considered gambling therefore different rules apply. At the first glance this sounds impossible, but let me explain in more detail.

When we look at trading we can look at three things:

1. Are you a speculator? This would basically be gambling
2. Are you an investor?
3. Are you somebody who is doing a business or a profession?

These are the three categories that traders can fall into, and the tax treatment CAN be different depending on which one you’re in.
If you’re doing Forex trading in the UK, something that’s called spread betting, that is considered as a bet, as opposed to if you’re using CFDs which are considered assets. If you’re doing CFDs you’re taxable and if you’re doing spread betting you are not taxable.

However, if you’re doing spread betting as a profession or business you can still be taxable because it is considered business income.

Taxation all over the world will depend on whether you’re making capital gains or not. If you’re an investor you’re buying and holding the asset longer period of time. In some countries, there’s a rule that if you hold for a year it is considered capital gains. If you’re a trader you generally hold assets much shorter.

Many countries will tax passive income or capital gains in unfavorable ways, so this is something to be careful about. This will vary from country to country. Some will not tax you on your passive income from abroad (Malta or Cyprus) and some will.

However, it is still important to keep in mind that if day trading is your profession almost all of these countries will be considering your income as earned income. You can still work around this with an international company structure.

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Are Gains From Forex Trading Taxable

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Banks and Business. This first type of traders are trading for the sake of company. They will then transform it to the currency of another nation in order to make more once they profited in the currency of one country. This method will assist them to conserve a lot because converting through the Central Bank is too pricey.

If you’re the type who likes the excitement and high adrenalin video game of trading, forex day trading might be the one for you. It might even be more profitable than long term Forex Trading. This is due to the fact that you can do more trades per day and assuming you are able to consistently make some revenues from the majority of the trades, your success can really be greater than that of long term traders.

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